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What's in Store for Mid-America Apartment's (MAA) Q4 Earnings?

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Mid-America Apartment Communities, Inc. (MAA - Free Report) — commonly known as MAA — is slated to report fourth-quarter and 2020 results on Feb 3, after market close. While the company’s results will likely reflect growth in revenues; funds from operations (FFO) per share are expected to reflect a year-over-year decline.

In the last reported quarter, this Germantown, TN-based residential real estate investment trust (REIT) reported a surprise of 2.6% in terms of FFO per share. The quarterly results reflected growth in revenues and average effective rent per unit for the same-store portfolio.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average beat being 2.55%. This is depicted in the chart below:

Let’s see how things have shaped up for this announcement.

Factors to Consider

The U.S. apartment market witnessed solid leasing activity in the fourth quarter of 2020, per a report from the real estate technology and analytics firm RealPage . Typically, demand remains low during the October-December quarter but the coronavirus pandemic pushed the demand to the latter half of the year from the usually strong second quarter. Particularly, in the last three months of 2020, absorptions amounted to about 79,000 units.

However, the recovery in demand was uneven, with the rebound being strong in the Sun Belt markets and the sub-urban ones, while considerable move-outs and sluggish demand were noticed in gateway markets.

Though occupancy level held up well in December, rent changes varied across metros, with select big cities witnessing significant price reductions, while in a number of individual metros rents continue to rise or have been steady, per a report from RealPage. Particularly, in the country’s 150 largest metros, December occupancy was 95.5%, which is just a tad below the year-earlier figure of 95.6%. Effective asking rents, on a nationwide basis, as of December, were off 1% from the 2019-end figure, with the December price point coming at $1,410 per month.

Amid these, we note that the thesis for MAA's suburban Sun Belt portfolio has been constructive in the fourth quarter. These markets are expected to have witnessed population growth as people continue to flee from dense urban and expensive coastal cities to pro-business, lower-taxed, more affordable Southeast and Southwest ones. This is expected to have increased the desirability of MAA markets, thereby, spurring the primary renter demand and leasing across its footprint.

Moreover, the residential REIT has been focusing on redevelopment initiatives and smart-home installations. This is expected to have supported it to generate accretive returns and boost earnings from the existing asset base. The company is also likely to have retained its investment-grade balance-sheet strength.

The Zacks Consensus Estimate for quarterly revenues is pinned at $422.3 million, suggesting a year-over-year rise of 1.3%.

However, the record-low mortgage rate is spurring the demand for existing and new-home purchases, mainly for young age cohorts, where homeownership rates have started to shoot up. During the quarter under discussion, this is expected to have resulted in a higher resident turnover and move-outs, thereby, straining occupancy. This along with rental rate declines is anticipated to have dented same-store revenues. Same-store revenues are projected to be $397 million, indicating a marginal sequential decline.

Moreover, the pandemic has strained the rent-paying capabilities of residential tenants. Per a RealPage report, rent collections have been disappointing in the lower-tier properties. Also, rent collections are lagging in expensive metros, where financial aid is insufficient to cover rent bill. This is also expected to have affected MAA’s performance in the fourth quarter.

In fact, prior to the fourth-quarter earnings release, there is a lack of any solid catalyst for becoming optimistic about the company’s prospects as the Zacks Consensus Estimate for the FFO per share has been unchanged at $1.64 over the past month. Further, it calls for a year-over-year decline of 2.4%.

For the year too, the Zacks Consensus Estimate for FFO per share has been unrevised over the past month to $6.42. The figure also indicates a 2% year-over-year decrease. Further, revenue estimates of $1.7 billion indicate 2.2% year-over-year growth.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for MAA this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

MAA currently has a Zacks Rank #3 and an Earnings ESP of 0.00%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks in the REIT sector you may want to consider, as our model shows that these have the right combination of elements to report a surprise for the fourth quarter:

Healthpeak Properties, Inc. (PEAK - Free Report) , set to report quarterly numbers on Feb 9, currently has an Earnings ESP of +4.40% and a Zacks Rank of 3.

American Homes 4 Rent (AMH - Free Report) , slated to release quarterly earnings on Feb 25, has an Earnings ESP of +0.55% and a Zacks Rank of 3, at present.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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